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Pot Producer Hydropothecary Wins 200-Ton Quebec Supply Deal

(Bloomberg) -- Focusing early efforts on its home province is paying off for Quebec marijuana producer The Hydropothecary Corp.

The Gatineau-based company on Wednesday said it signed a five-year supply agreement with Quebec’s alcohol distributor that could exceed 200 metric tons of cannabis products ahead of Canada’s expected pot legalization this year. The agreement strengthens the producer’s grip on about a third of Quebec’s market and could be worth more than C$1 billion ($795 million), according to Chief Executive Officer Sebastien St. Louis.

The shares jumped as much as 18 percent to C$4.18 in Toronto Wednesday, the biggest climb in four months, giving the company a market value of more than C$700 million.

“Now we’re one of the few companies that can give visibility with great certainty on its revenue,” St. Louis said in a phone interview.

Canada’s pot producers are jockeying to grab a slice of a market that could soon be worth between C$7 billion and C$12 billion in sales a year, according to Beacon Securities estimates. Even after a recent sell-off, many marijuana-related stocks have more than doubled in the last year.

The agreement makes Hydropothecary the preferred supplier for the Quebec market over the period and builds on a previous one-year letter of intent. Under the new terms, the grower will provide 20 tons of cannabis products in the first year, 35 in the second and 45 in the third. The amounts for the final two years, which will be determined later based on sales, could range between 49.5 and 54.5 tons, according to the company.

St. Louis said he hopes the contract, which offers more predictable sales than most rivals have at this stage, will help bring Hydropothecary’s market capitalization closer to that of Canadian giants such as Canopy Growth Corp. and Aurora Cannabis Inc. Those two stocks were the fourth- and fifth most-traded by value on Canadian exchanges over the past three months.

Five other producers also announced agreements with Quebec, for three years rather than five. The supplies range from at least five tons a year for Aurora to 12 tons for Canopy.

Hydropothecary will be ready to offer its products to other parts of the country in 2019 after it’s completed the planned expansion of its growing capacity, St. Louis said. The company is in talks with Ontario, British Columbia, Manitoba and Alberta, he said. The agreement with Quebec is the largest of its kind for the recreational market, the company said in a release.